What is the difference between being rich and being wealthy? Being rich is having money, but working for your money. Being wealthy is having money, but your money working for you. In other words, being wealthy is having money that can create a cash flow through interest or some other means that is large enough to provide a living for you and your family. Most of us are not wealthy, and becoming wealthy is not an easy task, but if you were to invest in real estate, you too, could become wealthy for retirement.
In today's housing market, it makes sense that that purchase of rental property is a wise decision for retirement income. If you are a rather young adult that can afford to purchase real estate, even with a bank loan, this could be a solution that could create a very comfortable retirement. Once you have paid the mortgage on the rental property, the rest if positive cash flow. Keep in mind that there is an upkeep factor involved, but if you were to keep a small percentage socked away for repairs and upkeep, most of your profit is saved for retirement and you have to do very little work for that profit.
You are not going to get rich overnight by investing in real estate. Most homes will gain value over time, but that time is not normally a week or two. Rental property investment is meant to be long term. Please do not pay attention to those infomercials that you see during the night that promise a get-rich-quick solution involving real estate. Chances are, the only ones getting rich quick are the ones selling you their junk at 2am. If you are inexperienced at home repairs or being a landlord, investing in rental property could be a risky undertaking. You need to make sure to do your homework, so to speak, before jumping in headfirst. You will need to know the basics of home repair, or you will spend all of your profit in paying someone to do miniscule projects around the rental home.
A problem that arises with many retirees is that the cost of living has gone up faster than their retirement account. The way to combat that is real estate. The average home is going to appreciate in value over time with the cost of living. The IRA you opened at age 40 is going to grow, but not at a steady pace and may or may not be in line with the cost of living. Many people, especially top paid executives, feel that their retirement is secure because of their 7-figure salaries and similar retirement accounts, but we need to look no further than ENRON to see that we never know what tomorrow will bring.
Now, let's crunch some numbers and show you what we mean. Take a $25,000 investment that you can make into a retirement account. Take that investment and make it a down payment on a $250,000 house for rental property. Lets plan on keeping this home for 20 years. On average, you can count on the cost of living making this home worth around $800,000 after those 20 years. Assuming a breakeven cash flow (which should not happen if you manage correctly) and not counting the tax breaks, you will have an ending profit of $775,000.
Now, lets take that an even larger investment of $50,000 and put it in a market fund because it is a non-risk investment. You can expect to earn 8%-10% per year on that investment. After 20 years, you would have anywhere from $266,000 - $366,000. This decision seems like a no-brainer to me.
As you can see, a real estate investment, when taken correctly, can provide a great retirement account” with little risk.
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